2• When to consider international expansion • Checklist prior to launching your international program• Potential ways to enter foreign markets• Identifying which countries might be right for your brand• Identifying and qualifying internationalcandidates• Costly mistakes to avoid
3When Should you Consider International Expansion?• Being opportunistic versus realistic• Franchising “what you know”• Integrate international development intoyour business planning process• Ensure your domestic and internationalstrategies complement rather thancompete with each other3
4Questions to Ask Before Committing to an International Development Strategy? • Do we understand the commitment that is required in terms of time, resources and people? • Is our product or concept well suited to international markets? • Does our management team have any experience outside our home country?
5International Development Strategies • A variety of options are available forinternational expansion, including;– Direct entry via company-ownedoperations– Joint-venture relationship– Direct Single-unit franchising– Area development franchising– Master franchising
6International Development Strategies • Joint-Venture Development– High risk, moderate reward strategy– Can be used to avoid foreign ownership restrictions or to “acquire” local knowledge within the ownership group– Partner roles must be clearly defined– Many joint-ventures fail– Dissolving the relationship is oftendifficult
7International Development Strategies • Direct Single Unit Franchising– High degree of control– Difficult to recoup initial development costs related to entering the country– Challenge of managing many relationships from a distance– Challenge of implementing a cohesive brandStrategy across different markets– More difficult to negotiate in-country supplieragreements
8International Development Strategies • Area Development Franchising;– Allows greater direct control over unit-level quality– Can create a level of “healthy competition”– Fewer relationships to manage than single-unit franchising– Ability to segment ownership groups by markets or regions within the local country
9International Development Strategies • Master Franchising– Most common form of international development– Often over-used– Ideal for countries having larger populations or core markets which are geographically distant– Success is reliant on selecting the right master franchisee– Master franchisee should also operate locations– Sub-franchisees could be area developers or single unit franchises
10Identifying Countries for Expansion • Have you received requests from abroad?• What market criteria matter for your brand entry?• How do you determine the “ripe” markets, what is the prioritization and at what rate do you plan to grow?• Do your competencies match the target countries selection?
11Identifying International Candidates • Potential International Franchisee Candidate Groups –– Successful companies and groups particularly from these sectors• Multi-Unit developers of other non-competing franchise systems
12Considerations For Initiating An International Expansion Effort
13Discussion Topics• Why International?• When Is The Right Time To Expand• Organizational Readiness• Developing The Expansion Plan
14Global business & franchise map Number of businesses / franchise systemsUSA 15 million / 3700UK 3 million / 750Australia 1 million / 1200China > 20 million? / 2000India > 25 million? / 1000Considerations Business know-how is valuable Capitalization strategy Economic opportunity for all Driver of employment Development of people National & international growth
15GOING GLOBAL BUILDING A SERIOUS INTERNATIONAL BUSINESS KEY REASONS FOR FAILURE Expanding an immature businessInappropriate business modelIrrational country selectionIgnoring market nuanceInadequate capital baseInsufficient senior resourceInadequate start-up strategy
16Going Global Building a Serious International Business Factor Immature Expansion readyCash flow Weak position Strong cash-flowCapital Under-capitalized Capital readily availableSystems and processes Under development Locked downHuman resources Stretched Senior resources availableDomestic growth Substantial remaining Exhausted
17ORGANIZATIONAL READINESS • Mindset needed to truly plan a global expansion (CEO to Reception)• Education, preparation and planning paramount to your success…do not underestimate the amount of time this takes• Understanding negotiations in different cultures• Profitable domestic operations• Strong franchisee validation
19What Does Your Franchise Need To Succeed In the Diverse Global Franchise Market?• A business plan that focuses on the right markets for your particular franchise• An assessment of the potential of these markets to produce a good Rate Of Return for your franchise• Clear differentiation from similar businesses• Documented training, support and marketing programs for your international licensee
20Factors To Consider When Deciding Which Countries To Enter• Rule of Law• Country Stability• Government Involvement• Intellectual Property Protection• Can you easily get your fees out?• Does the customer base fit your franchise• Potential To Achieve An Acceptable ROI
21Strong International Franchise Sectors For 2010 • Automotive – After market products and services• Children’s Education – At all levels• Commercial Services - Facility management, Cleaning, Handyman, Security• Personal Services – Handyman, Maid, Mobile• Retail – To fill large malls in emerging markets• Specialty Food – Mall anchor concepts, special brands, ethnic foods, well known pizza brands
22Strong International Franchise Markets For 2010/2011 • The United States• Brazil – Strong growth, high level of franchising• China – Focused on 1st and 2nd Tier Cities• India – Strong desire for food and retail brands• Expected Growth Markets For Franchising in 2011• South Africa, Turkey, and Vietnam• EU & Central Europe
23Budgeting and Planning for International Franchising
24When should a company begin planning for international expansion? 24
25WHEN A COMPANY HAS A CERTAIN • LOCATION(S) • PROFITABILITY • NUMBER OF UNITS • SIZE OF HOME MARKET • GOOD PROSPECTS ARE AVAILABLE
26WHAT SHOULD AN INTERNATIONAL FRANCHISE EXPANSION PLAN INCLUDE?
27– specific countries?– regions?– markets near existing operations?– well qualified franchise candidates?– markets where products offered by the franchise are most popular?
28Important Consideration: What portion of the marginal expense of entering a new foreign market should a franchisor expect to recoup from initial franchise fees?
29How long should a franchisor expect to wait before breaking even on its investment in a new foreign market?
30international expansion franchisors Elements of aninternational expansion franchisorssometimes overlook orundervalue
31– market research to evaluate viability • preliminary • at execution stage – franchising strategy • master • area development • joint venture • unit – resources needed • operational • financial • human
32What resources are available to help franchisors plan for International expansion?
33Budgeting and Planning Resources and Market Information • IFA - www Budgeting and Planning Resources and Market Information • IFA • US Commercial Services • CIA World Fact Book • Economist country briefings • American Chambers of Commerce • Local franchise and trade associations • Prospective franchisees • International banks • Multinational suppliers • Law and accounting firms • International Council of Shopping Centers • Consultants
34What roles could international franchise consultants play in helping to develop and implement international expansion plans?
35What process will you use to prepare a long range international budget in the following areas: – trademarks/legal – procedure manuals – translations – operational support – supply chain – equipment and furnishings
36Sources cited for this presentation IFA 50th annual convention, Feb Sources cited for this presentation IFA 50th annual convention, Feb Ned Lyerly, SVP - CKE Restaurants Kay Ainsley, MD - Michal H Seid Assoc. Kevin Derella, SVP – Coverall Health Based Sys. John Drig, President – Instant Imprints Carl Zwisler, Attny., - Gray Plant Mooty Rose Nichols Zimake, Int’l Deve., - Dairy Queen William Le Sate, CEO – Le Sate Int’l. Lee Vala, President, - Vala Interactive William Edwards, CEO – EGS, LLC Charlie Weeks, VP – Outback Steakhouse Rod Young, Executive Director, DC Strategies Jason Zickerman, CEO – The Alternative Board